Microsoft's lengthy search for a new CEO is over, and after all the waiting, the end result isn't that much of a surprise. Satya Nadella, formerly executive vice president of Cloud and Enterprise, is the company's new CEO.

Of all the names the rumor mill threw up, both internal and external, Nadella's was one of the most compelling: he has a strong software background (unlike, for example, Ford's Alan Mulally), and he knows Microsoft well (unlike Skype's Tony Bates or Nokia's Stephen Elop). Moreover, in a company that has historically been riven with in-fighting and politics, Nadella is widely liked and respected. Past and present insiders from across the company appear unanimous—both in public and in private—in their approval.

A natural pick

Nadella was born in Hyderabad, India. He earned a bachelor's degree in electrical engineering in India, a master's degree in computer science from the University of Wisconsin, and an MBA from the University of Chicago. After a stint at Sun Microsystems, he joined Microsoft as a program manager in the Windows developer relations group.

In 1999 he led Microsoft's bCentral group. bCentral was a fledgling effort to provide Internet services such as e-commerce and online marketing to small businesses. Through various acquisitions and shifts in focus, this group later evolved into Microsoft Dynamics, providing a range of business applications such as CRM and ERP.

It's in Microsoft's online services and cloud computing divisions that he has had the highest public profile. He became Senior Vice President of Online Services in 2007, overseeing Bing's development and the Yahoo ad partnership. In 2011 he was made president of the Server and Tools division. There, he is credited with unifying Windows Server with the Windows Azure cloud, enabling companies to run their workloads on premises or on Azure with easy migration and common management.

Further Reading

This has been rolled into a broader vision of a "Cloud OS," with not just Windows, but also SQL Server, Visual Studio, and System Center all part of this location-agnostic platform.

Nadella's predecessor, Microsoft CEO Steve Ballmer, said that the company was "all in" on the cloud. It was under Nadella (and his Server and Tools division predecessor, Bob Muglia) that this soundbite became a practical reality.

This move is not without its risks. Microsoft's server software business was built around selling licenses for on-premises software. The cloud trades on-premises licenses (either perpetual or at least multi-year) for off-premises usage-based subscriptions. This directly threatens Microsoft's strong position in the server room—and subsequently the corporate desktop—and has the potential to reduce the revenue even from customers who stick with Redmond's offerings.

Microsoft is widely viewed as a company that defends its cash cows and resists industry changes to avoid undermining them. The company's embrace of the cloud should serve as a refutation of that viewpoint, as these cloud services are all but designed to cannibalize the company's traditional software license business.

In spite of these risks, however, Server and Tools under Nadella saw its revenue and gross margin rise. The transition and development is still on-going—at the moment the cloud services are a small slice of the Microsoft pie—but the early indications are promising.

This performance speaks to Nadella's management style. He professes a love for cricket, and he says that playing in his school cricket team taught him about leadership and working in teams. This collaborative, team-oriented approach was essential to these cloud successes. Azure, Office, and Dynamics were all separate products from a couple of (infamously hostile) different divisions. Nadella fostered agreement between these teams to bundle and interoperate more closely.

A single point of weakness

Nadella brings leadership, co-operation, enterprise experience, familiarity with how Microsoft operates, and technical expertise to the CEO position, and as a candidate for the job, he's well qualified. There is, however, one gap that he doesn't fill: aside from his time at Bing, he has little background in the consumer space working on consumer software. He also has no experience with consumer hardware.

Microsoft has always been a company that spans both the consumer space and the enterprise space. The Windows PC was not just a machine for work; it was a machine you'd find in the home. The two sides strengthened each other: familiarity with Windows at home made it the logical choice for use at work, and vice versa. Similarly, Office being the software used to write homework and school reports ensured that it was the familiar preference of those entering the workplace.

Smartphones and the emerging interest in "bring your own device" make this even more important: the user's device bridges both the home and working worlds.

But the late 2000s were characterized by Microsoft dropping the consumer ball. The company didn't notice that the iPhone had made the smartphone a mass-market, consumer device, and the company did not appear to anticipate that the smartphone's success in the consumer space would in turn lead to success in the enterprise space—even though this kind of cross-pollination is a large part of what made Microsoft the behemoth it is. The same story was repeated with the release of the iPad and the consumer-oriented tablet.

There is pressure from Wall Street for Microsoft to abandon the consumer market. Sell off Xbox, Nokia, Bing, and retreat to the cozy confines of the enterprise market and become another IBM. I would argue that this is a mistake. Should Microsoft abandon the consumer market, the next generation of school-leavers will be raised on Google Apps, iPads, Chromebooks, and OS X.

This won't merely disrupt Windows on the desktop. It will damage the long-term viability of Office, and beyond that, of Windows on the server as a development platform. This is not to say that these businesses will evaporate entirely, but they'll be greatly diminished.

Importantly, Nadella appears to recognize this. At the company's 2013 Financial Analyst Meeting, Nadella said, "This notion that this is an enterprise product and this is a consumer product I think is not the way we will approach things. We'll think about these products as sort of meeting end user needs and enterprise IT needs, and how to balance that."

But recognizing the duality is one thing. Responding appropriately to it is another. Making sure that Microsoft doesn't make the same mistakes, and that it actually leads the consumer space rather than belatedly following others, will require strong, consumer-focused voices and leadership within the company. It's not surprising that Microsoft's new CEO does not cover all these bases. It's unlikely anyone could, such is the diversity of what Microsoft does.

With Nadella's promotion, it's not entirely clear where this consumer focus and understanding will come from. Microsoft may be pinning its hopes on a new more active role for Bill Gates. Gates has stepped down as chairman (replaced by John Thompson, formerly of Symantec) but will now spend up to one-third of his time working with product groups and defining the "next round of products."

But whether Gates can provide this guidance isn't so clear. In broad strokes, Gates' Microsoft was an early pioneer of both tablets and smartphones (and even smart watches). In each case, however, the company failed to adapt those early visions to accommodate new technology and new consumer preferences. Admittedly, Gates wasn't involved in the day-to-day running of the company when these oversights were made, but even as chairman, one would think that he could have pointed out that Microsoft was missing a trick—assuming he recognized it.

Satya Nadella is a good choice for Microsoft CEO, and while it's day one on the job, he's so far saying the right things: recognizing the importance of the consumer space, promoting a "mobile first, cloud first" view where devices are important and where hardware, including Nokia, is part of Microsoft's future. Wretched cliché as it may be, only time will tell if Nadella has what it takes to move the company forward.

148 Reader Comments

His first job is to plug the holes below Windows 8's waterline. It was a jump away from their enterprise strengths towards home users, but it missed its footing and managed to upset both groups of users.

Regardless of your thoughts about the technical merits, there's no doubt that Windows 8 has been a marketing disaster.

His first job is to plug the holes below Windows 8's waterline. It was a jump away from their enterprise strengths towards home users, but it missed its footing and managed to upset both groups of users.

Regardless of your thoughts about the technical merits, there's no doubt that Windows 8 has been a marketing disaster.

Fixing Windows 8 is going to be easy. Simply add in an an option where the UI and the default programs are 100% traditional desktop (for traditional-form-factor PCs), an option where the primary UI are the default programs are all metro (for the growing market of 8" slates), and an option where you mix-and-match the two (for convertible PCs). Problem solved. I bet they could implement this in 30 days if they just had the will to do so.

The bigger challenge, I think, will be making sure that Microsoft can stay relevant in a market moving increasingly toward mobile devices. Windows tablets and smartphones are both struggling to make inroads into iOS and Android space. If you solely focus on traditional hardware and traditional users, you risk becoming irrelevant as BYOD policies become more prevalent, and as companies incorporate more "consumer-ish" hardware at the request of the senior partners (see the iPhone and the iPad's penetration of the corporate market, even though Apple markets both as consumer devices).

Fixing Windows 8 is going to be easy. Simply add in an an option where the UI and the default programs are 100% traditional desktop (for traditional-form-factor PCs), an option where the primary UI are the default programs are all metro (for the growing market of 8" slates), and an option where you mix-and-match the two (for convertible PCs). Problem solved. I bet they could implement this in 30 days if they just had the will to do so.

Totally agree Mitlov - "fixing" Windows 8 is a tactical move rather than a strategic one, but still important. It buys time to spend on that next, bigger challenge that you talk about. You can spend money to make more money, and Microsoft have plenty around to spend, but you can't yet go back in time and Microsoft may have lost too much time going down this dead end.

I've never met a CEO who is good on consumer experience. The people who are responsible for that generally tend to sit several layers below and don't include the CEO in their discussions ... well ... ever.

Not to mention that the CEOs I've dealt with don't sit there and directly influence the way products are developed and their look and feel.

Well, last I heard about it, Steve Jobs, former CEO of Apple, used to take part in the development of all products.

Since I never heard of Nadella before, he was not an obvious choice to me. But, the message from both his choice and Thompson's new role looks like an intention to focus on Microsoft's core businesses. Those businesses don't involve consumers. Microsoft success came from serving the needs of the business world. Of course, Microsoft does still sell large numbers of PC's to consumers. They will not abandon that business. Nor are they likely to abandon xBox. But, I will be surprised if they do not give up the idea of trying to transform a business centered around business users to one that is focused on competing with Apple, Google, and Facebook to be the choice of the latest consumer fad. Nor would this change in direction mean giving up on technology. In fact, Microsoft's major contributions to technology came from the software technologies developed in server and tools. The consumer oriented strategy is the one that largely gave up om Microsoft's role as a technology leader.

It's not cloud that's the issue, it's the philosophy behind the major cloud players.

Microsoft's philosophy: people pay for services.Everybody else: you get most stuff for free, but for the extra good stuff you pay a little more.

Microsoft's philosophy: When you're in the club (have a domain/office account) you get to talk to everyone else in the club.Everybody else: Anybody can join the club for free, so you can talk to anybody who opens a free account.

Virtually my whole office has adopted Google docs and they ignore the Office 365 SharePoint sites and SkyDrive Pro. Why? They can only talk to the people in our office with SharePoint. They want to talk to everyone.

That's what the new CEO needs to understand. Otherwise, MS will continue to decline.

I do think Microsoft is going to go the way of a rarified, incorporeal company like IBM, but it's a question of how long it will take them to get there.

Retail stores that no one shops in, with phones and tablets no one buys, eventually become a question of hubris. Right now they are in the mode of keep launching new products, keep opening new stores, and hope for the best. Like with the Zune, it can't go on forever.

If the numbers aren't there — and we all know they aren't there — there's a limited amount of time it makes sense to devote massive resources trying to break into markets that have matured around other companies' platforms. I'm guessing they will look for a dignified exit strategy that won't spook the market. Maybe Lenovo would like to buy Nokia, too.

The biggest problem in the consumer world is that Microsoft has a lot to catch up whereas they need to start innovating and take lead in some areas to make a real beach head. Perhaps Nadella experience with Cloud services will help Microsoft to offer some meaningful differentiation from Apple and Google. Also, they need to speed up things. Apple and Google are introducing upgrades to their services yearly, whereas Microsoft is too used to the slower pace of the corporatized market.

I think that when you take a look at the Surface, Xbox and Nokia teams hardware work, MS does have the people to make innovative and desirable consumer hardware. It may not work out, but I think they have a good chance of making things work out (and I'm not even considering any input from Gates).

I've never met a CEO who is good on consumer experience. The people who are responsible for that generally tend to sit several layers below and don't include the CEO in their discussions ... well ... ever.

Not to mention that the CEOs I've dealt with don't sit there and directly influence the way products are developed and their look and feel.

Well, last I heard about it, Steve Jobs, former CEO of Apple, used to take part in the development of all products.

Steve Jobs is, and was, an exception. In so much that (a) he got involved and (b) he was actually pretty good at it. It also helped that Apple didn't have over 50 products.

Does your CEO get involved in the customer interface of your day to day products? Would you want him to? Or would you rather he steer the company in the appropriate direction and trust his staff to do the best job?

I've not seen a job description of a CEO role that demands that they get involve to that level of detail - and frankly, if they did I'd be wondering why this isn't being delegated to the Chief Product/Marketing Officer, the Head of Products, the Product Owner, the UX Manager and the Product Manager.

IMO, Microsoft needs to focus on its strengths, business software products and consumer entertainment products, and work to develop new products (software, hardware, whatever) in the middle-ground between the two.

The fact that many consumers are still awaiting the release of Microsoft Office products on the iPad is an indicator that Microsoft is still relevant to modern consumers. As long as you're relevant, you are still alive (unlike BlackBerry for example). There's a future for Microsoft and perhaps Nadella is the person to do it.

"Should Microsoft abandon the consumer market, the next generation of school-leavers will be raised on Google Apps, iPads, Chromebooks, and OS X.

This won't merely disrupt Windows on the desktop. It will damage the long-term viability of Office, and beyond that, of Windows on the server as a development platform. This is not to say that these businesses will evaporate entirely, but they'll be greatly diminished."

This is already happening, at the moment the only question is to what degree the disruption occurs.

Surface Pro will sell a few million devices a year, more or less the same as Windows tablets always have in their niche, but they've missed the boat on mass market adoption.

In 5 years, they've gone from 80-90% of the device pool, to what, 25% ? 30%? The pool's gotten bigger of course, but they are shrinking both in absolute numbers and relative numbers.

It is quite similar to Elop's "Burning Platform" statements around Nokia's position, even at a time when it was seemingly successful, profitable and dominant in its market.

This doesn't mean they can't continue to be a successful company , but they are unlikely to be at the size/scale they were previously.

I just hope he's not a fan of the software rental model that seems to be all the rage these days.

Even if you didn't understand what "services" was before this article, I think Peter fleshed out enough in here to make it clear that "services" very much includes "software rental". Or maybe you don't know what Office365 is, that it is a subscription based online version of Microsoft Office.

It seems that Satya has been the most likely candidate for a while, so not much surprise there. The Bill Gates angle surprised me though.

My impression (with no insider insight) is that Bill had a big enough "RAM" that he grokked the whole business in a special way. If that coherent, interlinked thinking returns, it'll be really good for Microsoft and the planet.

As a technically-savvy consumer, I would really like to see Microsoft move away from its recent attempts to force a walled app garden on x86 Windows and Windows Pro. Windows got to where it is by being an open platform and I think it should return to that philosophy.

As someone exploring a move into Windows/WP app development, I'd like to see WP and WinRT converge into a single ARM-based operating system. I really do like my Windows phone (I'll forgive a lot of sins when using a solid and inexpensive product) and I think if you combined that with the current Modern UI interface--which I almost kinda like on my brand-new Surface Pro when using the touchscreen (thanks, Best Buy!)--you could have a really solid phone/tablet OS.

Subscription-based Office is a terrible idea for consumers and needs to die immediately.

Virtually my whole office has adopted Google docs and they ignore the Office 365 SharePoint sites and SkyDrive Pro. Why? They can only talk to the people in our office with SharePoint. They want to talk to everyone.

Fair point... but your office was willing to give up privacy for that? And a service level agreement?

His first job is to plug the holes below Windows 8's waterline. It was a jump away from their enterprise strengths towards home users, but it missed its footing and managed to upset both groups of users.

Regardless of your thoughts about the technical merits, there's no doubt that Windows 8 has been a marketing disaster.

Fixing Windows 8 is going to be easy. Simply add in an an option where the UI and the default programs are 100% traditional desktop (for traditional-form-factor PCs), an option where the primary UI are the default programs are all metro (for the growing market of 8" slates), and an option where you mix-and-match the two (for convertible PCs). Problem solved…

The bigger challenge, I think, will be making sure that Microsoft can stay relevant in a market moving increasingly toward mobile devices.

Arguably, Redmond's problem with mobile is exactly because they came pretty close to offering your one-OS-for-all advice.

E.g., Surfaces strike me as pretty fine hardware as long as the consumer knows where to try them out, get advice from friends and co-workers about apps, tips and tricks, have a “genius” who doesn't speak IT as a backup, and doesn't worry if his personal purchases convey a lifestyle of a cubicle dweller vs being the first on the block with some fun X.

Moreover, in a company that his historically been riven with in-fighting and politics, Nadella is widely liked and respected.

I wonder if an insider will be able to unify the departments. It sounds like he will try to charm them back together. And has had some success doing so in the past. But at some point you have to say, "if you cannot work together, we will replace you with someone who can." In a way, an outsider is a more credible threat. This has been a recognized problem at Microsoft for years, and has not gone away.

As a technically-savvy consumer, I would really like to see Microsoft move away from its recent attempts to force a walled app garden on x86 Windows and Windows Pro. Windows got to where it is by being an open platform and I think it should return to that philosophy.

Although I agree that Microsoft needs to be more open, they aren't changing anything with x86 Windows in terms of openness. What they are doing is adding on an additional closed model for ARM that also runs on x86 (because that's what their customers are all using.

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As someone exploring a move into Windows/WP app development, I'd like to see WP and WinRT converge into a single ARM-based operating system.

Whole-heartedly agree and, tbh, I the fact that it hasn't always been the same development platform is nothing short of absurd.

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Subscription-based Office is a terrible idea for consumers and needs to die immediately.

I actually quite like subscription-based Office, for somebody like me who has to have the latest version on all of my PCs, it's a hell of a lot cheaper and more convenient than the alternatives.

It's not cloud that's the issue, it's the philosophy behind the major cloud players.

Microsoft's philosophy: people pay for services.Everybody else: you get most stuff for free, but for the extra good stuff you pay a little more.

Microsoft's philosophy: When you're in the club (have a domain/office account) you get to talk to everyone else in the club.Everybody else: Anybody can join the club for free, so you can talk to anybody who opens a free account.

Virtually my whole office has adopted Google docs and they ignore the Office 365 SharePoint sites and SkyDrive Pro. Why? They can only talk to the people in our office with SharePoint. They want to talk to everyone.

That's what the new CEO needs to understand. Otherwise, MS will continue to decline.

That's a fair point from a small company perspective, but what about a big company? Talk to everyone? You mean outside the company? Big no-no for company work.

Moreover, in a company that his historically been riven with in-fighting and politics, Nadella is widely liked and respected.

I wonder if an insider will be able to unify the departments. It sounds like he will try to charm them back together. And has had some success doing so in the past. But at some point you have to say, "if you cannot work together, we will replace you with someone who can." In a way, an outsider is a more credible threat. This has been a recognized problem at Microsoft for years, and has not gone away.

And it really won't. A company big enough to have departments or groups with specialties is a company with in-fighting and politics.

While I understand the convergence between the enterprise and consumer markets Peter and I obviously spent the nineties on two different IT planets.

The explosive growth of personal computing in the enterprise directly drove the consumer world on my planet. One day you walked into work and someone had plopped a computer on your desk where there wasn't one before. That computer, most likely, was running Windows 3.1. That was most people's introduction to personal computing,

Because you were forced to learn Windows and Office in your day to day job and already knew how they worked that's what you bought when you decided you needed a computer at home. The flow was from the enterprise to the consumer market, not the other way around.

I find Gates' return to a more active role surprising, as I find people's notion that he could somehow turn the company around.

It's not like he left and came back. He has been there. It seems to be the popular thing to do to blame Ballmer for MS' lack of achievement in the mobile space, but Gates was there every step of the way.

While I understand the convergence between the enterprise and consumer markets Peter and I obviously spent the nineties on two different IT planets.

The explosive growth of personal computing in the enterprise directly drove the consumer world on my planet. One day you walked into work and someone had plopped a computer on your desk where there wasn't one before. That computer, most likely, was running Windows 3.1. That was most people's introduction to personal computing,

Because you were forced to learn Windows and Office in your day to day job and already knew how they worked that's what you bought when you decided you needed a computer at home. The flow was from the enterprise to the consumer market, not the other way around.

That is how it happened for us as well. Dad got a DOS-clone from his employer and stayed with MS OS'es it through the years, in spite of his intense dislike for all things MS.

It's not cloud that's the issue, it's the philosophy behind the major cloud players.

Microsoft's philosophy: people pay for services.Everybody else: you get most stuff for free, but for the extra good stuff you pay a little more.

Microsoft's philosophy: When you're in the club (have a domain/office account) you get to talk to everyone else in the club.Everybody else: Anybody can join the club for free, so you can talk to anybody who opens a free account.

Virtually my whole office has adopted Google docs and they ignore the Office 365 SharePoint sites and SkyDrive Pro. Why? They can only talk to the people in our office with SharePoint. They want to talk to everyone.

That's what the new CEO needs to understand. Otherwise, MS will continue to decline.

this is also what the whole company needs to understand about Office. Trying to protect a struggling tablet business by keeping it off Android and iPad means that you are inviting alternatives to your Crown Jewels.

Not just its business today, but realistically 5 years from today, is Services, Software and Some Disparate Devices. They are NOT a “Devices and Services” company by revenues, market acceptance, or credibility and certainly not by profits.

As a technically-savvy consumer, I would really like to see Microsoft move away from its recent attempts to force a walled app garden on x86 Windows and Windows Pro. Windows got to where it is by being an open platform and I think it should return to that philosophy.

Although I agree that Microsoft needs to be more open, they aren't changing anything with x86 Windows in terms of openness. What they are doing is adding on an additional closed model for ARM that also runs on x86 (because that's what their customers are all using.

I understand that people have different opinions on this. It is my opinion that a closed app garden doesn't belong on a full operating system, and my suspicion is that Microsoft's intention was to push more and more software installation into the app store until the desktop was little more than a vestigal organ with little or no real use. I don't think that's how it's going to shake out, but I do think that was the intention.

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As someone exploring a move into Windows/WP app development, I'd like to see WP and WinRT converge into a single ARM-based operating system.

Whole-heartedly agree and, tbh, I the fact that it hasn't always been the same development platform is nothing short of absurd.

I'm glad we can agree on this. Like I said, I really enjoy WP8...though I'd be a lot more critical if I paid a flagship price for a device that ran it. $100 for a Lumia 620 is a great deal in my opinion, though, and I do hope Microsoft does continue to make great, inexpensive phones in the Lumia tradition.

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Subscription-based Office is a terrible idea for consumers and needs to die immediately.

I actually quite like subscription-based Office, for somebody like me who has to have the latest version on all of my PCs, it's a hell of a lot cheaper and more convenient than the alternatives.

I'm sure that it works fine for some people, but I find the notion distasteful, personally. Like the "App store on x86 Windows" thing, I realize that people have differing philosophies on things like this.

Sinosky did a lot of damage to Microsoft by the way he ruled Windows 8 and his complete lack of interest in co-operation with other divisions like Windows Phone.

WP8 as it stands currently is incomplete with a crappy API and ugly unfinished feature set. They should have never had two completely separate Windows on ARM efforts going on at the same time - Windows RT and Windows Phone. It should have been one codebase which would have allowed a much bigger, more consistent Windows app store.

They need to unite all consumer platforms with a common codebase to get the developer wet dream of "write once publish everywhere". A heck of a lot more dev shops would devote engineering resources to Windows apps if they knew that with one source code base they could simultaneously publish to desktop, tablets, phones and Xbox devices.

I find Gates' return to a more active role surprising, as I find people's notion that he could somehow turn the company around.

It's not like he left and came back. He has been there. It seems to be the popular thing to do to blame Ballmer for MS' lack of achievement in the mobile space, but Gates was there every step of the way.

I find it surprising as well. I could have sworn I saw an interview with Gates in the last couple of months where he indicated he was much more interested in his philanthropy (and he is awesome at it) than taking a more active role at MS.

As for "turning the company around" I'm not sure it needs as much shaking up as some people seem to think. It is still a hugely profitable company (set a new record for profits just last quarter). A little jiggling here and there perhaps, but there is a danger in trying to out Apple Apple and out Goggle Google. It's not their strength, software is.